Auto financing drops 0.4% MoM for the first time since July’20

February 18, 2022 (MLN): Amid soaring car prices and interest rates, automobile financing in Pakistan has dropped by 0.4% MoM to Rs352.2 billion in January 2022, after continuously increasing since July 2020, Central bank data showed today.

The MoM decline can be attributed mainly to the amendments made by the State Bank of Pakistan (SBP) in the prudential regulations for consumer financing to trim rapid loan growth mainly in the auto sector.

However, compared to the same month last year, Car financing volume was up by 34% from Rs262.2bn in January 2021, due to increased consumers’ appetite led by the introduction of new models and brands by new entrants, especially in the category of cars of or above 1,000cc engines and jeep (Sports Utility Vehicles/SUVs) segments which provides people with a wide variety of locally-assembled cars.

To note, the sale of passenger cars also witnessed a significant 30% MoM decline in January 2022 due to an increase in prices, rising interest rates, and pre-buying in Dec 2021 in anticipation of tax measures announced in the mini-budget. However, on yearly basis, car sales saw an increase of 17% YoY, this took 7MFY22 volumes to 131,759 units, recording robust growth of 61.53% YoY led by the launch of new models, and pickup in overall economic activity during the ongoing fiscal year, according to data released by the Pakistan Automotive Manufacturers Association (Pama) earlier this month.

Going by the SBP data, for house building, banks’ financing stood at a record level of Rs151 billion by the end of January 2022, a jump of 72% YoY and 5% MoM, mainly due to mainly SBP’s measures to promote housing and construction of buildings in the country. Financing for personal use stood at Rs244.3bn, up by 10% YoY, while declining by 0.2% MoM.

This led the overall credit disbursed to consumers to clock in at Rs820.5bn during January 2022, registering a growth of 30% YoY and 1% MoM.

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